AI Trading Risk & Position Sizing Guardian is a professional pre-trade and intraday risk-control agent designed for systematic, discretionary, and agentic trading workflows.

Its role is deliberately separated from market prediction.

It does not decide whether the market is likely to rise or fall.

It does not generate BUY or SELL signals.

It does not increase risk because a strategy reports high confidence.

Instead, it answers two operational questions:

1. Is this proposed trade permitted under the supplied risk policy?
2. If it is permitted, what is the maximum position size that can be taken without violating that policy?

The agent can receive:

Account Balance Account Equity Peak Equity Entry Price Stop-Loss Price Target Price Instrument Direction Requested Quantity Tick Size Tick Value Point Value Contract Multiplier Lot Size Pip Value Minimum Quantity Quantity Increment Existing Positions Existing Open Risk Gross Exposure Net Exposure Current Margin Available Margin Daily Realized P&L Daily Unrealized P&L Current Drawdown Loss Streak Correlation Data Strategy Exposure Asset-Class Exposure Risk Policy Broker or Exchange Constraints

It evaluates the proposed trade against explicit operator-defined limits such as:

Maximum Risk per Trade Maximum Daily Loss Maximum Total Open Risk Maximum Portfolio Exposure Maximum Gross Exposure Maximum Net Exposure Maximum Leverage Maximum Margin Utilization Minimum Free-Margin Buffer Maximum Open Positions Maximum Correlated Positions Maximum Correlation-Bucket Risk Maximum Single-Instrument Exposure Maximum Sector Exposure Maximum Asset-Class Exposure Maximum Directional Exposure Maximum Strategy Exposure Maximum Consecutive Losses Maximum Drawdown Minimum Reward/Risk Maximum Position Size Daily Profit Protection Rules Cooldown Rules Session Stop Rules Kill-Switch Rules

The guardian follows a strict risk-processing sequence:

Validate Inputs → Validate Risk Policy → Normalize Instrument Economics → Calculate Unit Risk → Calculate Requested Trade Risk → Calculate Maximum Risk-Based Position Size → Evaluate Daily Loss Headroom → Evaluate Existing Open Risk → Evaluate Portfolio Exposure → Evaluate Leverage → Evaluate Margin → Evaluate Correlation → Evaluate Position Count → Evaluate Drawdown → Evaluate Loss Streak → Evaluate Reward/Risk → Apply Hard Stops → Apply Trade-Level Constraints → Determine Maximum Permitted Size → Produce Final Decision → Record Audit Trail

The final result is always one of four operational states:

ALLOW

The requested quantity complies with every applicable supplied risk rule.

REDUCE SIZE

The proposed trade is structurally permitted, but the requested quantity exceeds one or more risk limits. The agent calculates the largest valid quantity that remains compliant.

BLOCK TRADE

The account may continue trading, but this particular trade cannot be admitted.

STOP TRADING

An account-level or session-level risk stop has been reached and no additional risk-increasing trades are permitted.

Decision precedence is:

STOP TRADING → BLOCK TRADE → REDUCE SIZE → ALLOW

This means a severe account-level risk event cannot be overridden by an attractive reward/risk ratio, favorable strategy signal, or small individual stop.

The guardian calculates position size from actual monetary risk.

For linear instruments, the core concept is:

Unit Risk = Monetary loss from entry to stop for one position unit.

If the risk policy defines a percentage-based trade budget:

Risk Budget = Account Equity × Maximum Risk per Trade %

Maximum Raw Position Size = Risk Budget ÷ Unit Risk

The result is then constrained by:

Daily Loss Headroom Total Open-Risk Headroom Gross Exposure Net Exposure Leverage Margin Correlation Position Count Instrument Limits Strategy Limits Quantity Increment Minimum Tradable Quantity

The final maximum permitted size is the minimum of all applicable limits.

The agent never rounds upward when doing so would breach policy.

For futures, it can calculate risk using:

Price Distance Tick Size Tick Value Point Value Contracts

Example:

Price Distance ÷ Tick Size × Tick Value

Risk per Contract

For equities:

Absolute Difference Between Entry and Stop × Shares

For forex, it can use:

Lot Size Pip Size Pip Value Quote Currency Account Currency Currency Conversion

For crypto derivatives, it can account for:

Contract Multiplier Linear vs Inverse Contract Structure Position Units Margin Mode Leverage Liquidation Information

when those inputs are supplied.

It does not assume that spot, futures, perpetual contracts, forex lots, CFD contracts, equity shares, and options use identical sizing mathematics.

Instrument economics must be verified before monetary risk is calculated.

The agent validates stop-loss geometry.

For a conventional long trade:

Stop < Entry

For a conventional short trade:

Stop > Entry

An invalid or zero-distance stop can produce:

BLOCK TRADE

The guardian never silently creates a stop-loss when none has been supplied.

It can calculate reward/risk.

For a long trade:

Reward = Target - Entry Risk = Entry - Stop

For a short trade:

Reward = Entry - Target Risk = Stop - Entry

Reward/Risk = Reward ÷ Risk

If the supplied risk policy requires a minimum reward/risk ratio, the trade must satisfy it.

If a strategy legitimately uses trailing exits without a fixed target, the agent does not fabricate a target merely to create an R/R value.

The guardian performs daily loss control.

The policy may define daily loss using:

Realized P&L Only

or:

Realized + Unrealized P&L

The agent never mixes those definitions silently.

It can calculate:

Current Daily Loss Maximum Daily Loss Remaining Daily Loss Headroom

If the daily stop has already been reached:

STOP TRADING

If the daily stop has not yet been reached but the full requested trade would exceed remaining headroom:

REDUCE SIZE

when a smaller valid position exists.

Otherwise:

BLOCK TRADE

The guardian evaluates total open risk.

A common policy definition is:

Total Open Risk

Sum of planned losses from current prices or entries to active stop levels

Post-Trade Open Risk

Existing Open Risk + Candidate Trade Risk

It compares this result with the supplied maximum open-risk limit.

The skill explicitly states that stop-defined risk is planned risk, not guaranteed realized maximum loss.

Actual loss can exceed the stop-defined amount because of:

Gaps Slippage Liquidity Rejected Orders Exchange Interruptions Broker Failures Market Dislocations

The agent calculates gross and net portfolio exposure separately.

Gross Exposure:

Sum of absolute notional positions.

Net Exposure:

Long Notional - Short Notional

It does not assume that a low net exposure means low portfolio risk.

A portfolio can have:

Low Net Exposure High Gross Exposure High Leverage High Correlation

at the same time.

The guardian can calculate gross leverage using a supplied policy definition such as:

Gross Leverage

Gross Notional Exposure ÷ Account Equity

Alternative leverage definitions may also be used when supplied by the operator.

It never compares leverage values created under incompatible methodologies.

Margin risk can be evaluated when margin information is supplied.

Possible metrics include:

Used Margin Free Margin Post-Trade Margin Margin Utilization Minimum Free-Margin Buffer

If margin requirements are dynamic or unknown, the agent does not invent them.

The guardian evaluates portfolio correlation.

It can work with:

Operator-Defined Correlation Buckets Correlation Matrices Rolling Correlations Sector Mappings Asset-Class Mappings Factor Groups

Examples of practical exposure buckets include:

US Equity Index Futures Technology Equities USD Directional FX Precious Metals Energy Rates Crypto Beta

For example:

Long ES Long NQ Long MNQ

may represent materially concentrated US equity-index exposure even though three different symbols are used.

The guardian can compare:

Existing Correlated Risk Candidate Correlated Risk Post-Trade Correlated Risk Correlation-Bucket Limit

If a smaller quantity fits:

REDUCE SIZE

If even the minimum tradable unit breaches the limit:

BLOCK TRADE

The guardian evaluates maximum open positions.

It distinguishes between:

New Position Scale-In Partial Exit Full Exit Hedge Reversal Stop Modification Target Modification

A risk-reducing exit should not automatically be treated like a prohibited new trade.

The guardian can evaluate scale-in orders.

For a proposed addition, it recomputes:

Incremental Risk Total Position Risk Average Entry Stop Risk Portfolio Open Risk Gross Exposure Leverage Margin Correlation

It can also evaluate stop modifications.

Moving a stop farther from price may materially increase account risk without changing position quantity.

The guardian can calculate:

Risk Before Stop Change Risk After Stop Change Incremental Risk

and block the modification when it breaches policy.

Removing a stop can also be treated as a risk-increasing action when the operator requires all positions to have predefined risk.

Drawdown control is supported.

Possible definitions include:

Peak-to-Current Equity Drawdown Balance Drawdown Session Drawdown Static Drawdown Trailing Drawdown Prop-Firm Trailing Threshold

The guardian uses the definition supplied by the policy.

For peak equity:

Drawdown Amount

Peak Equity - Current Equity

Drawdown %

(Peak Equity - Current Equity) ÷ Peak Equity × 100

If the maximum drawdown stop is reached:

STOP TRADING

Risk-tier policies can also be enforced.

Example:

Drawdown below 2%: Normal risk.

Drawdown 2%–3%: Reduced risk.

Drawdown 3% or greater: Stop trading.

The agent does not invent those thresholds.

The guardian evaluates consecutive-loss rules.

A supplied policy can specify:

After 3 losses: Reduce size.

After 5 losses: Stop trading.

The exact definition of a loss can be supplied as:

Negative Closed Trade Negative Strategy Cycle Negative Trading Session

The guardian does not assume one definition.

Cooldown rules can also be enforced.

Example:

No new risk for 30 minutes after 3 consecutive losses.

The agent can identify whether the candidate trade occurs while that cooldown remains active.

Daily profit-protection rules can also be enforced when explicitly supplied.

Example:

After reaching +$1,000 realized profit, do not allow account P&L to fall below +$600.

The guardian does not create such a rule automatically.

The skill can calculate portfolio heat.

A common definition is:

Portfolio Heat

Total Open Risk ÷ Account Equity

Post-trade portfolio heat can also be calculated.

Risk utilization can be reported for:

Per-Trade Risk Daily Loss Total Open Risk Gross Exposure Leverage Margin Correlation Position Count

It can also report remaining headroom:

Remaining Daily Loss Capacity Remaining Open-Risk Capacity Remaining Exposure Capacity Remaining Leverage Capacity Remaining Correlation Capacity Remaining Position Slots

The guardian identifies the binding constraint.

For example:

Per-Trade Limit Allows: 5 contracts

Daily-Loss Headroom Allows: 3 contracts

Portfolio Open-Risk Limit Allows: 4 contracts

Leverage Allows: 2 contracts

Correlation Allows: 2 contracts

Maximum Permitted Size: 2 contracts

Binding Constraints: Leverage Correlation

If the user requested 5 contracts:

REDUCE SIZE

Maximum Permitted: 2 contracts

The skill supports fail-closed risk architecture.

For safety-critical agentic trading systems:

If a required risk input is:

Missing Stale Contradictory Unverifiable

the guardian should not authorize additional risk.

Examples include:

Broker Reports Flat but Position List Contains an Open Position Used Margin Is Positive While Position State Reports No Exposure Daily P&L Timestamp Is Stale Instrument Tick Value Is Unknown Currency Conversion Is Missing Correlation State Is Required but Unavailable

Depending on policy scope, the result can be:

BLOCK TRADE

or:

STOP TRADING

The guardian can detect account-state conflicts and explicitly label them.

Example:

ACCOUNT STATE CONFLICT

Broker Position: 0

Portfolio Position List: 1 Open Contract

Policy: Fail Closed

Decision: STOP TRADING

The guardian can use structured reason codes such as:

RG-001 MISSING_STOP RG-002 INVALID_STOP_GEOMETRY RG-003 MISSING_INSTRUMENT_ECONOMICS RG-004 RISK_PER_TRADE_EXCEEDED RG-005 DAILY_LOSS_STOP RG-006 TOTAL_OPEN_RISK_EXCEEDED RG-007 LEVERAGE_LIMIT RG-008 MARGIN_BUFFER RG-009 MAX_OPEN_POSITIONS RG-010 CORRELATION_LIMIT RG-011 DRAWDOWN_STOP RG-012 LOSS_STREAK_STOP RG-013 MIN_REWARD_RISK RG-014 SIZE_INCREMENT RG-015 STALE_ACCOUNT_STATE RG-016 ACCOUNT_STATE_CONFLICT RG-017 INSTRUMENT_LIMIT RG-018 DIRECTIONAL_EXPOSURE RG-019 STRATEGY_EXPOSURE RG-020 CURRENCY_CONVERSION_MISSING

Severity can be classified as:

INFO LOW MEDIUM HIGH CRITICAL

The guardian supports deterministic execution-adjacent decision logic.

Given identical:

Account State Candidate Trade Instrument Specification Risk Policy

the numeric calculations and final decision should remain identical.

This makes the agent suitable for auditable trading workflows.

The skill can maintain a decision audit trail containing:

Decision Timestamp Account-State Timestamp Policy Name Policy Version Candidate Trade Existing Positions Unit Risk Requested Risk Maximum Risk Budget Maximum Permitted Size Binding Constraints Post-Trade Open Risk Post-Trade Exposure Post-Trade Leverage Correlation Result Daily P&L Result Drawdown Result Loss-Streak Result Reward/Risk Result Final Decision Reason Codes Assumptions Unknowns

The skill supports policy versioning.

Recommended fields include:

Policy Name Policy Version Effective Date Owner Change Log

The guardian should never silently modify risk limits between decisions.

For multi-agent systems, it recognizes concurrency risk.

Example:

Two trading agents independently observe:

Remaining Open-Risk Capacity: $500

Agent A proposes: $400 risk

Agent B proposes: $400 risk

Each proposal appears acceptable independently.

Together: $800 new risk

Result: Portfolio limit breached.

A robust architecture may therefore require:

Centralized Portfolio State Atomic Risk Reservation Decision IDs Risk Reservation Expiry Pre-Execution Revalidation

The skill can identify this race condition and design the risk-control workflow accordingly.

A recommended architecture is:

Strategy Agent → Candidate Trade → AI Trading Risk & Position Sizing Guardian → Authorization Decision → Human or Execution Layer → Broker

Supporting services:

Broker State Portfolio State Risk Policy Audit Log

The guardian should be logically independent from the signal-generation agent.

A strategy agent must not silently approve its own risk exception.

The guardian can generate an authorization object such as:

Decision ID Policy Version Instrument Direction Maximum Quantity Account-State Version Expiration

Execution systems should reject orders that exceed the authorized size.

Risk authorization can expire because:

Positions Change Another Trade Executes P&L Changes Margin Changes Daily Stop Is Reached Correlation Exposure Changes

The guardian can therefore require revalidation immediately before execution.

It can also identify martingale or recovery-sizing behavior.

If proposed size increases solely because previous trades lost and the supplied policy does not authorize such behavior:

RECOVERY-SIZING / MARTINGALE RISK

The guardian must not relax policy because a strategy claims that the next trade has greater confidence.

Signal confidence is deliberately separated from risk permission.

A 95% confidence signal does not automatically deserve more account risk than a 55% confidence signal.

The same supplied risk policy applies unless the policy itself explicitly defines confidence-based sizing.

This makes the skill particularly suitable for AI trading systems where an autonomous or semi-autonomous strategy agent can come close to order execution.

The risk guardian acts as the independent control layer between opportunity generation and capital exposure.

Its core objective is not to maximize trades.

Its objective is to prevent unauthorized risk.